On its 10-year anniversary, our Renewable energy country attractiveness index (RECAI) has been revamped to reflect the fundamental shifts in the industry over the past decade. Klair White reports on the changes.

We began publishing our quarterly index in 2003, analyzing and scoring countries on the attractiveness of their:

Renewable energy markets

Energy infrastructure

Suitability for individual technologies

Compared to 10 years ago, the renewable energy sector is now much more aligned to macroeconomic, political and energy market fundamentals, rather than being wholly reliant on fiscal support regimes.

These diverse factors are driving record levels of new investment in the industry: global annual clean energy investment totaled US$269b in 2012, a fivefold increase from 2004.

New decade, new methodology

The changing landscape prompted us to revise the methodology used to score and rank the top 40 countries to better reflect today’s investment and deployment drivers. Key changes include:

More focus on the extent to which markets are prioritizing renewables as a necessary and desirable part of the energy mix, including an assessment of:

Energy supply and demand

The competitiveness of renewables relative to other energy sources

The importance of decarbonization (including targets and market mechanisms)

Increased emphasis on the economic and political stability of a market

Investors cite the ease of doing business as an important differentiator between markets, resulting in a renewed focus on investment climate and the bankability of renewables from a financing, infrastructure and transactions perspective.

The sustainability and transparency of energy policies have also become more critical.

US back on top

The revamped index sees the US regain the top spot, as high barriers to entry for external investors realign China into second place.

However, China’s growth prospects remain strong, with continued GDP growth, increasing demand and the sector’s strategic importance to the local economy.

While South America continues to grow in prominence, new policy measures and tender cancellations in Brazil may temper the region’s rapid growth in the short term.

Chile continues to be the rising star in the index, supported by natural resources, huge demand from the mining sector and a growing project pipeline. Peru has also entered the index, highlighting the ongoing globalization of the renewables market.

Australia’s relative ranking has significantly improved due to:

Robust macro conditions

A strong decarbonization agenda

Cost-competitive wind power

High deal activity with Chinese and Japanese investors

Its attractiveness in the medium to long term may depend on whether the upcoming federal election results in policy U-turns on issues such as carbon pricing.

Elsewhere in Asia, Japan continues to see high project activity and investment and Thailand has made its debut on the index in 30th place.

In Europe, ongoing economic concerns and rising electricity prices mean policymakers, particularly in Eastern Europe, are struggling to balance growth and sustainability. Even Germany – always a beacon of stability — is now considering downward revisions to its renewable support scheme.

Political instability and an absence of clear policy frameworks across parts of the Middle East and North Africa region have resulted in Egypt, Tunisia and the UAE falling out of the top 40.

Table 1: RECAI rankings (at May 2013)

(see the full report for more details and individual technology indices)

Transaction trends

Despite increasing new investment in clean energy globally, 2012 represented an 11% decrease on 2011 levels. It seems 2013 will see the market continuing to find its feet after a turbulent year, in which falling subsidies, oversupply and capital constraints created a market focused on consolidation, restructuring and distress-driven transactions.

This focus on portfolio management and deleveraging is expected to continue. The mismatch between capital expenditure plans and the corporate capacity to finance this investment may drive more asset disposals.

New entrants will boost transaction activity. High-profile corporates are developing energy mix optimization strategies to manage their own portfolios. Institutional investors are looking to renewable infrastructure assets as low-risk investments with moderate yields.

Asia-Pacific companies and investors are also likely to continue driving sector-wide deal activity.

New markets relating to grid infrastructure, capacity markets, energy storage and smart meters will need to emerge to facilitate the ongoing expansion of renewable deployment.

From subsidy to diversity

As we move closer to grid parity, the role of policy will need to change. Governments must consider what sustainable support looks like in a post-fiscal-subsidy world.

An emphasis on regulation rather than policy may emerge. Cross-border or global agreements could help transcend local politics, geographical constraints and protectionist measures.

The focus is now on renewable energy’s affordability and its impact on:

Energy security

Economic growth

Job creation

Infrastructure investment

These factors, and the decarbonization agenda, are likely to provide a more robust foundation for the growth of renewables in the foreseeable future.

How we can help

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Klair is a manager in the UK Environmental Finance team and is the editor of the RECAI publication. She has six years of experience in transaction advisory services, three of which have focused on providing policy, financing and transaction services to projects and clients within the clean energy sector.

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